Bloomberg Crypto 02/13/2024

Live from Bloomberg's world headquartersin New York, I'm Sonali Basak. And from our studios in Washington, DC,I'm Kailey Leinz. Welcome to Bloomberg Crypto.A look at the people, transactions and technology shaping the world ofdecentralized finance. And Kelly, it's a risk off day in themarkets as U.S. inflation comes in hot.Bitcoin falls now after hitting $50,000 for the first time in over two years.We will talk about that price action with John Wheeler, president of AbbottLabs. And the role ETFs are playing in whatwe're seeing.

Plus, we're also going to speak toKristin Smith, the CEO of the Blockchain Association.Her group is pushing back against proposed digital asset legislation beingdiscussed in Congress, and she says it misses the mark.All right, so all of that is is ahead. But first, let's get a snapshot of themarket. The best way to do that on yourBloomberg terminal c r y p go. And what you will find is like four riskassets pretty much across the board. It is a down day for digital assetsacross the board. Of course, that hotter than expectedinflation coming in this morning is.

Fueling that.Bitcoin right now is down about 2.7%. We are back around $48,500 or so afterbreaking above $50,000 yesterday, hitting the highest level since Decemberof 2021. ETFs having a lot to do with the rallywe have seen, but it's cooling off just a touch today and you really even seeeven more underperformance for some of the altcoins out there.The likes of Litecoin, for example, down six percentage points, avalanche byabout 5%. We're going to be talking more aboutthat with John Will in just a few minutes here.And of course, it's interesting to see.

Relative outperformance today, eventhough it's still lower coming from ether down about 1% were trading rightaround 2600 finaly. And I know you've been paying attentionto today aside the rally we've been seeing and yeah, we should talk abouthow much the enthusiasm for Etherium has grown as of late.We are seeing in the six months that it has been trading through that BitcoinETF approval, the spot Bitcoin ETF approval.As investors get more excited about a potential Etherium ETF approval, you'veseen a rally of about 40% actually from the lows to the highs.That's almost 70%.

And if you think about just what'shappening here, Etherium is a very different cryptocurrency than you'reseeing in Bitcoin. Proof of stake rather than proof ofwork. But yet one of the more widely acceptedtokens. Nonetheless, if we flip out the boardhere and see just how many issuers are preparing for that flood here, if you dosee a Bitcoin ETF also being matched by an theory ETF, you have more than a halfdozen issuers really coming to the surface here and applying to get the jobdone, including BlackRock and Fidelity. Franklin Templeton just joined the race.The approvals, Kaylee are expected as.

Early as this year with deadlines beingseen between really May and August. Let's see how choppy the water reallygets until then. Yeah, we know the waters are indeedoften choppy and of course with all those moving parts and all event blue ofK 33 research told us last week, there are still plenty of positive catalystsfor crypto investors to look forward to. So the ATF was initially enough to pushprices from $30,000 up to the peak at almost $50,000 in January.So I would argue that ETFs have contributed quite hefty in pushingprices higher. Now a new narrative is needed.Macro definitely plays a role, but so.

There's also the upcoming Bitcoinholding. You can make the case that the halvingis a known event and something that the market anticipates, but it's still ahuge reduction in daily supply issuance, amounting to 164,000 fewer bitcoins soldby miners each and every year. So if you contrast that to the currentnet US spot ETF inflow of 38,000 bitcoins since its launch, then it'sstill a hugely positive factor for the market.Joining us to discuss this optimism is Bloomberg's Isabelle Lee, where we haveto really start, Isabel, with the ETFs, because we've seen really a recordbreaking moment for the ETF industry.

With these Bitcoin ETF inflows in theassets. What have we seen in the first month?So there are many metrics used to assess whether an ETF launch is successful ornot. And the key is inflows and volume.And if you look at those two, yes, the ETF launches were a success.No matter what people say. For right now, we are some 22 tradingdays in and we're seeing 3.6 billion in net inflows and that's even subtractingthe 6.5 billion outflows we've seen from grayscale.And we have Bloomberg Intelligence really turning out great reports.They said that, for instance, of.

Fidelity on BlackRock's Bitcoin ETF wasthe first to hit 1 billion in five days. So that's very impressive.And the two were the first to hit 3 billion in around 20 days.So I can go on and on with the metrics, but then buy a lot of these.They are a stellar success and also trading volumes.They're the first to hit 6 billion in shares and trading volume, and that'sfigure is only comparable to the launch of Bitcoin, the Bitcoin ETF futures andalso gold, which is the gold ETF that we've seen your spot.Well. And of course, Isabelle, we're nowbasically a month into this since these.

Things debuted.It's a question, though, of how things progressed from here, especially withthe Bitcoin rally, at least for today, looking like it's fading.So that's exactly what a lot of investors are asking.We've seen flows slow a little bit and people are saying, okay, so is themomentum over? Is this going to be are we going to seejust a slow trickle from here on out? But then some analysts are also sayingthat a lot of institutions are still on the holdout.You have Vanguard Group still not listing the ETFs.We have also the likes of LPL Financial.

They want to see whether some of theseETFs will shutter before they move trillions of dollars in it.Imagine if you move a lot of your pension funds there and then an ETFshudder. So a lot of people are still in a waitand see mode. But for sure, this ETF launch reallyvalidated a lot of the crypto faithfuls who now are feeling vindicated becausethey're legitimized by Wall Street. So this really helps the momentum whenit comes to the price action. And 50,000 is around number.Although we're seeing Bitcoin slide down for the first time in eight tradingsessions.

We can still say that it's going to be ashallow pullback. I mean, people are just profit taking.All right. Bloomberg's Isabella, we thank you somuch for joining us. Now, let's discuss this further withJohn with the president of Ava Labs. John, always great to have you here onBloomberg Crypto. If we just start with the price actionwe're seeing in Bitcoin specifically, we hit that $50,000 level.Now we're pulling back from it. Is that a a ceiling we're going to bedealing with? Or do you think that this is mostlyinflation enforced today and this rally.

Has a lot more room to run?I think it was the CPI numbers that came out today that affected the today'sprice. It's a very short term thing.But underneath that, if you take away the macro, things are very, very healthyin terms of adoption. Isabel just said it was a great recordinflows and showed some numbers. I agree 100%.In fact, I had dinner with one of the largest issuers of the Bitcoin ETF andthey so much has been said the same thing.They're super excited. I think going forward, though, yourquestion, Kelly, what is going to really.

Drive it besides known factors such asBitcoin happening or possibly the Etherium ETF, it's going to come backdown to where is the adoption awareness happening?So as an operator develops, helps companies deploy on top of all the landin the blockchain, We see far more activity today after the Bitcoin ETFbecause this halo effect awareness of the space from traditional enterprises,from Wall Street firms. So you look at the developer count, theapplication count, all have been increasing dramatically.That's ultimately where the asset class is going to improve from fund thefundamental adoption.

Yeah.It's pretty crazy, John, that you would have seen such an increase ininstitutional adoption just by the approval of spot Bitcoin products,nothing else. And the SCC was very clear, or at leastGary Gensler was when they initially said okay to these products, this isspecific to bitcoin ether, still an unresolved question and the largerregulatory landscape seems pretty much unchanged.So what still stands in the way in terms of headwinds from more institutionscoming into the space? Is it basically just regulatory?Regulation is a big one.

What the institutions are doing isdeploying on Testnet, which is practice valueless stuff kind of thing, and theyare getting familiar with the technology, understanding what thetechnology can do, but they want clarity in terms of the regulation.One of the areas we're hoping for clarity maybe later this year or earlynext year will be stablecoins. I think there is real product market fitwith stablecoins. I think even our research even came outwith the report saying that there has been more stablecoin settled onblockchain than the Visa network over the course of last year and that issomething that should not be taken.

Lightly.Coinbase even came out with a report saying that in the US, consumers cansave $75 billion a year from credit card fees if blockchain and able solutionsand stablecoin was was used. So to answer your question moresuccinctly, clarity on the regulation. I think, John, we also have to ask aboutthe dynamics of the system, given it's not too long ago that much of the cryptocrash came from hidden leverage and leverage once again is coming back intothe system. What form does it exist in now and is itmore sustainable perhaps than what we've seen in the most recent years?Leverage is slowly coming back, but it's.

Nowhere near where it was in 2021.Even look at the volumes are Coinbase, volume is, you know, equates orcorrelates to the leverage in the system.Coinbase, with all this activity, is still nowhere near the volume they sawin any given day in 2021. In fact, you know, we've talked to a lotof banks and SRB, you know, 121 is a rule that they can't get around.You know, if you have $1 of crypto assets, you have to have another dollarof some other asset in order to provide any lending or any leverage, so tospeak. And they're just not willing to do thatbecause the returns on that are so low.

So you need regulation to clarify thisasset class versus others. And I don't really worry about leverageright now, even though it's come back a little, it's nowhere near where it wasbefore. I'm curious also about what you thinkabout tokens outside of Bitcoin and Etherium in particular.You look at just Solana, for example, that has really jumped back and hasshrugged off any worries about the network outage about a week or two ago.Your own avalanche token has also seen significant gains over the last 17 sevendays, rather up 14%, matching that of Solana.How much competition is there between.

The coins outside of Bitcoin, Etherium?So you talked about a lot.I talked about Avalanche and you talked about the area.But Bitcoin aside, Bitcoin is a proof of work different from POS.And in terms of the layer ones, there are different types of layer onesavalanches, EVM compatible. So assets can move back and forthbetween Syria and Avalanche. It's whereas Solana is probably more ofa standalone call it you know monolithic chain.But the reason why the asset class has improved I think on both of those isbecause there are there are people.

Looking at the transactions on chain,looking at the development on chain number of developers coming and theactivity that's happening. And there's no doubt in the last call itfour months, the activity has steadily been going up and both those ecosystems.All right. John Woo, president of Apple Apps, thankyou so much, as always for joining us. We appreciate your time.Still coming up here, Kristen Smith, the CEO of the Blockchain Association, willbe here to discuss why she's pushing back against digital assetanti-money-laundering legislation being discussed on Capitol Hill.And later, we'll talk about the alleged.

Fraud involving Gemini Trust and digitalcurrency group. It was three times bigger than initiallythought. Allegedly.The details ahead and access all the latest data and newson crypto. Check out c r y pico on the terminal.This is Bloomberg. We do feel like for crypto founders usstill lacks the clarity of regulation plus a lot of support system.It seems very political. During the election year, things becomesdifferent. After that it becomes different.So a lot of founders are still doing.

Offshore entities, all moving to Europeor moving to UAE. But at the same time, I feel like a lotof family offices or a lot of public pension funds will want to hold Bitcoinfor a long time. They have good alternate of increasingthe liquidity in the market. That was some of our conversation withKavita Gupta last week. And today the Blockchain Associationsent Congress a letter co-signed by 80 national security professionals pushingback on some of the anti-money laundering related legislation beingdiscussed on Capitol Hill. Our next guest said in a letter, quote,Senator Warren's legislation would.

Inadvertently hinder law enforcement andnational security efforts by driving the majority of the digital asset industryoverseas. This shift could also lead to loss ofvaluable expertise and visibility for the U.S.in the blockchain realm. Further, this legislation, ifimplemented, will have no meaningful effect on the foreign illicit actors ittargets. Joining us now is Kristin Smith, CEO ofthe Blockchain Association. She's here with me in our Washington,D.C. studio.Kristen, great to see you.

Of course, this legislation originatingin the Senate trying to get a handle on some of these illicit efforts in thecrypto space. You are not the only ones pushing backagainst this. The fact is, though, the Senate and theHouse, for that matter, are really struggling to get anything across thefinish line in this Congress. Does this really threaten to become law?Well, listen, I think a bill begins, as you know, a new law begins.It's a bill that is introduced. And so I think it's important,especially when Senator Warren has been so public about trying to advance thislegislation, that we take it seriously.

I think our hope today is we had thisletter that was signed by 80 professionals, mostly who work withinour association, who have military and national security backgrounds, who carevery much about the security of the United States.And they're saying, you know, hey, Congress, we care about these issues,too. But it doesn't make sense to put theBank Secrecy Act. This was legislation that was developedfor centralized institutions when there isn't a clear picture of what theledger, what the accounts look like. That's what the Bank Secrecy Act isdesigned to regulate.

With public blockchains, we have a lotof transparent information. And so what we're asking for is a morenuanced conversation that can look at the unique features of this technology.Let's identify what are the real gaps here and create a different kind ofsystem for regulating this space if it indeed needs to be further regulated.It's important to know that the Bank Secrecy Act does apply to some parts ofcrypto already. And so I think our hope is that we canbuild on this conversation. We're very excited that the HouseFinancial Services Digital Assets Subcommittee is holding a hearing thisweek where they're going to get deeper.

Into these issues because we need tomove the conversation to a place where we can really get into the weeds andreally get into the details of the technology and figure out the right wayto come up with a good regulatory structure.Christine, let's play devil's advocate for a second here, because if you are anormal way financial institution in the United States and you are subject tothat Bank Secrecy act, you're sitting there asking, why wouldn't crypto besubject to the same standards? But you had this pushback from theindustry saying this is a crypto killer in a lot of ways as written.So as proposed, what is the real issue.

In terms of how it would impactoperations in the crypto community? Right.So the Bank Secrecy Act does apply to parts of crypto already, right?So if you have a centralized institution or organization, a company like Coinbaseor Kraken that has customers that takes custody of those funds, they do complywith the Bank Secrecy Act. They have a customer relationship.They can collect information about who those customers are, and then they arein a position to file reports with the Financial Crimes Enforcement Network ifthere's something suspicious or a high value transaction that occurs.The problem with crypto networks is that.

There are different parts of theecosystem like node operators, like software developers of smart contractsand validators. There are different parts of theecosystem that aren't centralized. There's nobody there to collect thecustomer information and do the reporting.And so unlike with the Bank Secrecy Act, where we're trying to get visualizationinto what the transactions look like, you can go see the transaction on theblockchain there. That's easy to do.It's just trying to figure out how to match which of those transactions areassociated with suspicious wallets.

That's what we should be focused on andnot trying to rebuild the ledger that's already publicly available.Well, and this is one area of focus in the Senate.But of course, the House has been largely focused on other initiatives,including Stablecoin legislation. It seems the feeling was that couldmaybe be the one that ultimately gets done in this Congress before theelection in November. We've got nine months to go.Is that still seeming like it could happen?Yes, I think there's still hope for Stablecoin legislation.This is an issue that, you know, largely.

Has.It's a very close to getting to the finish line.I think there's conversations happening with the Senate and the House and theadministration to try to figure this out.This is an obvious gap in current statutory authority that everyone agreesneeds to be filled. And so I'm optimistic we can get there.You know, there's also market structure issues and that the House was veryactive in this last year. I think, as you well noted, Congress isnot particularly high functioning right now when it comes to moving throughlegislation, which which is fine.

Right.Congress takes time to do things. I think where we're looking right now isto the lame duck. And is there an opportunity to piece acouple of things together that would fill some of these regulatory gaps whenthis sort of election pressures have have died down?I was a staffer on Capitol Hill for ten years and very magical things can happenat the end of a Congress. And so I think that we are working rightnow to get out and do more education with members of Congress, to try to havemore thoughtful education around or thoughtful conversation around illicitfinance and really kind of be in a.

Position that if something comestogether in the lame duck, that everybody understands the policies thatthey're considering. Blockchain Association CEO KristenStewart, we thank you for your time on a busy agenda in D.C..Now coming up next, we'll talk about how the damage from alleged fraud betweenDCG and Gemini and its investors ballooned to $3 billion being sought bythe New York attorney general. Stick with us.We'll talk about that next. This is Bloomberg. The alleged fraud involving Gemini anddigital currency group was three times.

Bigger than initially thought, accordingto the New York attorney general, in a revised lawsuit that now seeks $3billion in restitution for more than 230,000 investors.The New York A.G. accuses the firms of failing to discloseto investors the risks of a crypto lending program that they startedtogether in 2021. Erik Larson reported on this forBloomberg and joins us now. Why now is the New York attorney generalgoing after more, especially when the firms have been fighting the firstallegation in the first place? Yeah, that's a really good question.Like you said, the suit was filed back.

In October, and now this amendedcomplaint alleges that since the time that the lawsuit was filed, additionalinvestors and customers have come forward to complain about losses.So the attorney general, Letitia James, says that they actually uncovered $2billion in additional alleged fraud. And while the original complaint focusedmore on Gemini and the fraud that was allegedly done by DCG through Gemini,they said that these additional complaints were for investors who hadgiven money directly to D.C. Genesis.So it's just another group of customers coming forward to make these complaints.And they filed this lawsuit as a result,.

This amended lawsuit.And Eric, what do the defendants have to say about this?Well, they have said that this is all that they have done nothing wrong.First of all, they said that they have only engaged in fair and honest dealingswith their customers, especially Barry Silbert, who came out very strongly whenthe suit was filed and said this Gemini, for its part, even though they're namedas a defendant here with Dcgi, Genesis Gemini has said all along that they wereactually a victim of this fraud. So they actually supported theallegations against the other defendants, but complained that theynever should have been sued, that.

They're basically punishing the victimby being named as a defendant in this complaint.Eric, what are the next steps in this lawsuit?Well, what we can expect to see are motions to dismiss from all of thesedefendants. I wouldn't say based on what we'reseeing, it's likely that they might have very different version of events here.They might be blaming the others for what happens.But eventually, you know, the judge will make a ruling on these various motionsto dismiss. Once they hit, that could be a differentoutcome for different defendants and.

Then eventually potentially a trial.All right. Bloomberg's Erik Larson, thank you somuch and looking forward to your continued reporting on this.That wraps it up for Bloomberg Crypto today.Finally, as we're seeing a down day for digital assets.Bitcoin right now trading at $48,620 off the back of hot inflation data.Of course, you're seeing that risk off attitude reflected in markets across theboard. The Nasdaq 100 right now down about1.4%. The two year yield up 14 basis points.Maybe we're not going to see Fed cuts as.

Soon as this market previously thought.So I'm wondering how much that macro narrative will continue to factor intocrypto markets specifically.

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